Keeping up with the Jones (Act)

By Richard J. Paine, Sr.
Thursday, October 17, 2013

The continued existence of the Merchant Marine Act of 1920 carries with it substantial economic and financial benefits. Its repeal could be catastrophic.

The three-legged stool commonly referred to as the Jones Act is officially known as the Merchant Marine Act of 1920. For the purposes of national defense and growth of domestic commerce, it most simply calls for the waterborne transport of cargo and/or passengers between U.S. ports to be limited to U.S. flagged vessels.  Its continued existence carries with it substantial economic and financial benefits.  Its repeal could be catastrophic.
Known as cabotage, a sovereign nation controls the transport of goods or passengers between two points within its borders. Trade or navigation in coastal waters and transportation by air are also regulated under the cabotage rights of a country. Rights of cabotage in the U.S., as specified in the Merchant Marine Act of 1920 prohibit any foreign flagged or foreign built vessel from engaging in coastwise trade in the United States.
To enjoy the benefits of the U.S. flag, the flagged vessel must be owned by a U.S. citizen, 75% of its crew must be U.S. citizens or permanent U.S. residents and the vessel must be built in the U.S. If a U.S. flagged vessel is repaired in a foreign yard, no more than 10% of the vessel’s weight may be replaced by foreign steel. 
A corporation, partnership or association is deemed to be a citizen of the United States only if the controlling interest is owned by citizens of the United States (46 USC § 50501), is incorporated under the laws of the United States or a state, its chief exec and chairman of the board are U.S. citizens and noncitizens directors are fewer than the number necessary for a quorum.
As purposed originally, the Act sought to assure that the United States would have the best equipped merchant marine fleet in the world to carry its commerce or war materiel cargos in times of national emergency. It further sought to guarantee the viability and strength of the U.S. shipbuilding industries’ ability to provide state-of-the-art military and commercial vessels to project U.S. influence globally.
Inherently, the Jones Act may be protectionist in nature, but the benefits that it brings to the U.S. commercial marine industry might be incalculable. Nevertheless, the pressure to repeal such policies may ebb and flow, but it never goes away.  That said; some actual numbers – compiled by the U.S. government itself – give a glimpse into the breadth of this important sector of the economy.
Consider this: the value of a U.S. flagged vessel in U.S. domestic waterborne trade is greater than a similar, non-U.S. flagged vessel precisely because it was purpose-built for a protected market. With the U.S. flag comes a built-in, albeit competitive, marketplace for the goods and services associated with U.S. shipbuilding, trade, labor and transportation. In addition to the increased or preserved financial value of the vessel, the vessel owner enjoys a market free from the encroachment of cheap, foreign competition that also enjoys its own level of protection in the form of reduced taxes, government subsidies and other perks not available to pure Jones Act carriers.
To some in Congress and the industry, the idea of such a protectionist law may run counter to their ideas of free trade. They argue that the cost of a U.S. flagged vessel is higher than that of ships built in China, Korea or other countries with cheaper material and labor costs. Thus, they assert that U.S. shipbuilders are non-competitive in the world marketplace. They further argue that having such a closed marketplace only increases the costs associated with the transportation of passengers and goods due to limited competition. 
There might be some truth in that argument, but for a moment, think about a world without the Jones Act.  You may remember that the experiment has been run by the Administration on a waiver basis over the course of the Deepwater Horizon incident and increased fuel supply issues during Hurricane Katrina and Superstorm Sandy with punitive results to U.S. shipping interests. Indeed, this administration has issued more Jones Act waivers than the previous five that preceded it.
Without the Jones Act, existing U.S. flagged vessels would rapidly decline in price. The equity built into a vessel built for coastwise trade would flounder as the market would flood with foreign competition.  The value of a U.S Coast Guard inspected passenger vessel or soon to be inspected Subchapter M tug, towboat or OSV would plummet due to cheaply built, non-inspected, possibly unsafe or unsecure vessels from foreign nations.
Our licensed mariners would join the rolls of the unemployed; whether hawse piper or ring knocker.  Arguably – and in an era of reduced government spending (NOAA / U.S. Navy / U.S. Coast Guard / USACE) due to sequestration – our shipyards and their labor forces, repair facilities, marine engine manufacturers and repairers would go away for good. Once those skills are lost, they will be gone forever. Moreover, those entities that do survive might, due to markedly less domestic competition, produce goods that are even more expensive. The revenues and value of our largest and most successful commercial marine entities would be in a virtual deep dive overnight. Financial Statements would show huge losses in tangible net worth and cash flow to the point where borrowing might be impossible. Ratings, real or implied would cause the stock value of our public marine-related companies to drop like a lead balloon.
Our national security would be compromised as foreign vessels with potentially malevolent intent could ply our coasts and invade our ports. If our safety were to be secured, the cost of policing our coastal waters and harbors would escalate to tax-busting levels. Beyond this, there is no real guarantee that foreign registered tonnage, in the absence of U.S. flag assets, would continue to do the job at today’s market rates.
The Merchant Marine Act of 1920 was voted into law for a reason: It exists for the good and protection of the American people through logical cabotage provisions. If the voices of repeal ever do get loud enough and it is no longer the law of the land (or in this case, the sea), then hold on for a very bumpy and expensive ride.


(As published in the October 2013 edition of Marine News - www.marinelink.com)

 

Maritime Reporter October 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

Legal

Sapurakencana Wins 3 Petronas Oil blocks

SapuraKencana Petroleum Berhad today announced that it has entered into Sale and Purchase Agreements to acquire the entire interest of PETRONAS in 3 blocks offshore

ST Engineering Rejigs Top Deck

Singapore Technologies Engineering Ltd (ST Engineering) today announced the appointment of senior management personnel to new key management positions in the

Houston Port Commission Approves budget

The Fiscal Year 2015 Operating and Capital Budget was approved Thursday during a special meeting of the Port Commission of the Port of Houston Authority.   Projections

Ports

HMAS Success Deploys to Middle East

After months of preparation, HMAS Success departed Garden Island in Sydney today for a six-month deployment to the Middle East Region to provide logistic support

Rosneft Ships First Oil From Chayvo Field

Rosneft commenced shipment of crude oil extracted at the Northern Tip of Chayvo license off the coast of Sakhalin, with the first tanker carrying Sokol-grade crude leaving port on November 21.

Houston Port Commission Approves budget

The Fiscal Year 2015 Operating and Capital Budget was approved Thursday during a special meeting of the Port Commission of the Port of Houston Authority.   Projections

Finance

ST Engineering Rejigs Top Deck

Singapore Technologies Engineering Ltd (ST Engineering) today announced the appointment of senior management personnel to new key management positions in the

MHI Receives "Best IR Award"

Mitsubishi Heavy Industries, Ltd. (MHI) has received one of this year's "Best IR Awards" presented annually by the Japan Investor Relations Association (JIRA).

Houston Port Commission Approves budget

The Fiscal Year 2015 Operating and Capital Budget was approved Thursday during a special meeting of the Port Commission of the Port of Houston Authority.   Projections

Maritime Security

HMAS Success Deploys to Middle East

After months of preparation, HMAS Success departed Garden Island in Sydney today for a six-month deployment to the Middle East Region to provide logistic support

7 Rescued from Sinking Freighter Near Haiti

Seven crewmembers were rescued after their 100-foot coastal freighter began taking on water and sank approximately 45 miles north off of Cap Haitien, Haiti, Friday.

USS Oscar Austin Deploys to 6th fleet

Arleigh Burke-class guided-missile destroyer USS Oscar Austin (DDG 79) departed Naval Station Norfolk Nov. 21 for a deployment to the U.S. 6th Fleet area of responsibility (AOR).

Government Update

Russia Has No Plan to Cut Oil Output

Russia, the world's biggest energy exporter, does not plan to cut oil production to shore up prices, Rossiya 24 television quoted Energy Minister Alexander Novak as saying on Saturday.

Nigeria to Cut Petrol Subsidy by Half

Nigeria plans to cut subsidies on petroleum products by half next year after sharp falls in global crude prices, spurred the government to revise its 2015 budget downwards,

Venezuela Ships First Crude Mixed with Algerian Oil to China

Venezuela is sending its first shipment of crude mixed with Algerian light oil to China, according to state oil company PDVSA and traders.   Venezuela recently

 
 
Maritime Careers / Shipboard Positions Maritime Contracts Maritime Standards Naval Architecture Navigation Offshore Oil Ship Simulators Shipbuilding / Vessel Construction Sonar Winch
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.2050 sec (5 req/sec)